2012 (7) TMI 102 - AT - Income Tax

Share application money - addition u/s 68 on ground that identify and creditworthiness of the investors and the genuineness of the transactions was not established - Held that - In the present case, the assessee has provided to the A.O. not only the names of the shareholders but their addresses along with PAN and Bank statements etc. Hence, the assessee has discharged its primary onus and, therefore, in the light of judgment in case of Lovely Exports (2008 (1) TMI 575 (SC)) and also in the case of Divine Leasing and Finance Ltd. (2006 (11) TMI 121 (HC)), the addition made by the A.O. with regard to receipt of share application money cannot be sustained. The same is deleted - Decided in favor of assessee. Unsecured loan - addition - AY 02-03, 03-04 - Held that - Since assessee has not provided any confirmation of this loan creditor or his address or PAN etc. and nothing has been provided to establish the creditworthiness of this loan creditor. Therefore, addition made is upheld - Decided against assessee. Unsecured loan - addition - AY 04-05 - Held that - Since all the three ingredients i.e. identity, creditworthiness of loan creditors as well as genuineness of transaction were established. No adverse material had been brought on record by the A.O. and, therefore, the addition made by the A.O. simply on the basis of this aspect hat the notice issued were received back unserved is not justified. Addition deleted. Repairs to plant and machinery - factory expenses - dis-allowance of excess expenditure in comparison to expenditure incurred in previous year - Held that - Unless it is established that the claim of expenditure is either bogus or is of capital/personal in nature, dis-allowance is not justified. In absence of any contrary material on record, addition made is deleted - Decided in favor of assessee. Unexplained advances - addition made of notional interest - Held that - When there is no finding to the effect that actually the loan had been granted on interest or that interest has actually been collected and collection of interest was not reflected in the account, no addition can be made on account of notional interest. Addition is deleted. See B & A Plantations and Industries Ltd Vs CIT (1999 (12) TMI 43 (HC)) - Decided in favor of assessee Bad debts and advances written off - dis-allowance - Held that - Issue is covered in favor of assessee in respect of bad debts by decision in case of TRF Ltd(2010 (2) TMI 211 - SUPREME COURT). However, since assessee could not explain the nature of these advances and unless the nature of advances is business advance, same cannot be allowed - Decided partly in favor of assessee.

Summary

Issues Involved:
1. Addition of share application money.
2. Addition on account of deposits under Section 68 of the Income Tax Act.
3. Disallowance of repair expenses.
4. Disallowance of factory expenses.
5. Disallowance of interest paid to SIDBI under Section 43B.
6. Addition of notional interest on advances.
7. Disallowance of bad debts and advances written off.

Detailed Analysis:

1. Addition of Share Application Money:
The primary issue revolves around the addition of share application money received by the assessee. The Assessing Officer (A.O.) added Rs. 35,00,000/- for the assessment year 2002-03, Rs. 37,00,000/- for 2003-04, and Rs. 31,55,000/- for 2004-05, citing the failure to establish the identity, creditworthiness, and genuineness of the transactions. However, the assessee argued that all relevant details, including PAN, bank statements, and confirmations, were provided. The Tribunal referred to the judgments of the Hon'ble Supreme Court in the cases of Lovely Exports Pvt. Ltd. and Divine Leasing & Finance Ltd., which state that if the share application money is received from alleged bogus shareholders whose names are provided, the department can reopen their individual assessments but cannot add the amount in the hands of the company. Hence, the Tribunal deleted the additions for all the years in question.

2. Addition on Account of Deposits Under Section 68:
For the assessment year 2002-03, the A.O. added Rs. 85,740/- as unsecured loans, citing the absence of proper address, identity, creditworthiness, and genuineness of the transaction. The Tribunal upheld this addition as the assessee failed to provide confirmations, addresses, or PAN of the loan creditor. For the assessment year 2004-05, the A.O. added Rs. 80,45,000/- as unsecured loans. The Tribunal deleted this addition, noting that the assessee provided confirmations, addresses, PAN, and bank statements, fulfilling the requirements of Section 68.

3. Disallowance of Repair Expenses:
The A.O. disallowed Rs. 2,12,112/- out of the total repair expenses claimed, citing a significant increase compared to the previous year without any adverse material. The Tribunal deleted the disallowance, stating that repair expenses can vary yearly and no evidence was provided to show the expenses were bogus or capital in nature.

4. Disallowance of Factory Expenses:
The A.O. disallowed Rs. 1,52,198/- out of the total factory expenses claimed, citing a significant increase compared to the previous year. The Tribunal deleted the disallowance, noting that the increase in production and sales justified the higher expenses and no evidence was provided to show the expenses were bogus or capital in nature.

5. Disallowance of Interest Paid to SIDBI Under Section 43B:
The A.O. disallowed Rs. 8,48,715/- as interest on term loans from SIDBI, citing non-payment before the due date of filing the return. The Tribunal remanded the issue back to the A.O. to verify the assessee's claim that the disallowable portion of interest was already added back in the computation of income to avoid double disallowance.

6. Addition of Notional Interest on Advances:
The A.O. added Rs. 21,533/- as notional interest on advances given by the assessee, citing the absence of details and purpose of the advances. The Tribunal deleted the addition, referring to the judgment of the Hon'ble Gauhati High Court in the case of B & A Plantations and Industries Ltd., which states that notional interest cannot be added if there is no finding that the loan was granted on interest or interest was actually collected.

7. Disallowance of Bad Debts and Advances Written Off:
The A.O. disallowed Rs. 5,95,768/- as bad debts written off and Rs. 59,080/- as advances written off, citing the failure to explain the nature of advances. The Tribunal allowed the claim for bad debts, referring to the judgment of the Hon'ble Supreme Court in the case of TRF Ltd., which states that bad debts written off in the books are allowable. However, the Tribunal upheld the disallowance of advances written off, noting the assessee's failure to explain the nature of the advances.

Conclusion:
The appeals for the assessment years 2002-03 and 2004-05 were partly allowed, while the appeals for the assessment years 2003-04 and 2005-06 were fully allowed. The Tribunal provided detailed reasoning for each issue, emphasizing the need for proper documentation and adherence to legal precedents.